Reasons for Insurance regulation

Insurers are regulated primarily by the states and also by the federal government. Major reasons for the regulation of insurance include the following:

  • Maintain insurer solvency

  • Compensate for inadequate consumer knowledge

  • Ensure reasonable rates

  • Make insurance available

Maintain Insurer Solvency

Insurance regulation is necessary to maintain the solvency of insurers. Solvency is important for several reasons. First, premiums are paid in advance, but the period of protection extends into the future. If an insurer goes bankrupt and a future claim is not paid, the insurance protection paid for in advance is worthless. Therefore, to ensure that claims will be paid, the financial strength of insurers must be carefully ...

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